Behind the wall: how fintechs are driving change in Mexico City
The negative stigma towards our Mexican neighbor, amplified by the Trump administration and the media, is constant. Do yourself a favor and visit Mexico City: in the bustling metropolis, you will find a strong startup community and entrepreneurs breaking down the boundaries of financial and social inclusion.
CDM- what?
I visited CDMX last month. Ciudad de Mexico is the new brand for the capital city, formerly nicknamed “DF” for Distrito Federal. The city was quiet since the high season, typically from March to May, was over. I stayed for a week in Roma. That same Roma was in the spotlight last year as the set of Alfonso Cuaron’s eponymous award-winning movie — it’s the neighborhood where the director grew up. My first encounter with Roma dates back to 2015, during a brief business trip. Brief, yet enough to fall in love with the surroundings: picture walkable blocks, friendly locals mixed up with a fair amount of tourists and expats, and small businesses. The overall creative and experimental mindset shaping the development of the area reminded me, in parts, of my beloved Brooklyn.
Roma circa 2019 was a delight. I experimented the service industry feeding and entertaining the Mexican middle-class, which is growing so much it is expected to join the top ten contributors to global middle-class consumption by 2030. I felt the joie de vivre as I walked on tree-lined streets down to excellent third-wave coffee roasters, an outstanding woman-owned restaurant and long-time running businesses. I also got a taste of the flourishing art scene. The gentrification of this central and well-connected neighborhood is real, as I stumbled into new developments and construction sites. No wonder Goldman Sachs predicts that the country will become the world’s fifth largest economy by 2050.
On top of that, history surrounds you everywhere in Roma and in bordering Condesa: if you look up, your eyes catch French and Spanish-influenced architecture; if you look down, the irregular pavements remind that earthquakes have been shaking the city through the decades. The largest one to date, in 1985, killed over 10,000 residents while the most recent one in 2017 killed over 300.
More than just a buzz word, “innovacion” comes with VC money and public funding
As I was strolling down Avenida Amsterdam, the lush avenue on the east side of Condesa — and a former horse track!- I noticed the local coworking spaces and accelerators lining-up next to stunning old and newer residential buildings: IVO Condesa, a.255 Social Working Club, El 3er Espacio. The French co-working and accelerator Numa was around the corner too. From the sidewalk, the local startup ecosystem looked strong. And funnily enough, my friend told me that the co-founder of the international movement FuckUp nights, Leticia Gasca, is Mexican.
Last fall, Sequoia Capital made its grand debut in Mexico with a $2.5 million investment in the online platform Rever, together with Zetta Venture Partners. Andreessen Horowitz also landed in the country in 2018 with an investment in the online bank Cuenca ($2 million invested with Kaszek, a VC operating throughout Latam). Later that day, I searched some statistics to confirm my initial feeling: according to the LAVCA (Latin American Private Equity and Venture Capital Association), Mexico was the second most active Latin American market for VC investments in 2018, with $175 million invested in 95 startup, right behind Brazil ($1.3 billion invested in 259 startup).
For new businesses, the size of the local market offers an ocean of opportunities. With a population of 21.6 million, Mexico City is the seventh biggest city of the world. The still-rising penetration of internet is gold for startups in e-commerce or online banking. In 2018, 65% of Mexicans had access to an internet connexion (versus 75% in the US). Leading the way, the federal government has been playing an active role supporting the technology sector with $2.7 billion invested in the past eight years.
Mexican fintechs are tackling use cases for financial and social inclusion
Among all new businesses, fintechs have been particularly dynamic in a country with very little competition in the traditional banking sector. There were about 334 of them by mid-last year, mainly in the field of lending, payments and remittences. Finnovista reported a growth rate of 50% for the sector between 2017 and 2018. Considering this fast-pace, the government passed the ‘Fintech Law” in March 2018 and joined the few countries creating a regulatory framework for activities conducted by crowfunding and e-money entities. Both are now subject to consumer protection and anti-money laundering rules, under the authority of the Central Bank. They can also operate as financial institutions and hold customers’ deposits.
As my curiosity led me to research about Mexican fintechs and their founders, I stumbled upon a list of use cases highlighting their direct positive impact on societal development. Take Cuenca. Their business model is simply based on the fact that only 20% of the Mexicans have a bank account. While the average American owns 2.6 credit cards, online banking services are a game changer in Mexico. In a country where cash is still king, fintechs like Clip with its mobile credit card reader for smartphones are encouraging the development of non-cash payments. The startup raised $100 million earlier this year, with a notable investment from SoftBank. On the lending side, micro-lending platforms are saving “mom and pop” businesses that do no qualify for classic banks’ loans. Come Konfio, that uses data from social media and more traditional sources to approve loans in real-time.
These are only a few examples of the dynamic fintech landscape of Mexico. Beyond the bubble of wealth that is the tech scene, these founders are committed to address burning social issues while running for-profit businesses that eye the interest of foreign investors. Shouldn’t it be the ultimate goal of innovation and technology? To raise our experience as humans, individually and collectively? In her speech at the Mexican Senate last spring, the former director of the IMF, now Head of the ECB, Christine Lagarde asks “how do we break down the solitude of poverty?”, and answers “ we do this by building an inclusive economy and by increasing access to financial services so that all Mexicans can aspire to save and borrow — to buy homes and build businesses.”
The first night of my stay, as I was picking up keys, my Airbnb host advised: “you can walk everywhere in Roma, it’s safe. Just don’t find yourself late night in Doctores, on the East side of Avenida Cuauhtemoc”. I took the advice and didn’t explore further East. On my last morning, I stopped by La Romita: sort of a mini-town inside Roma, the plaza with its 16th century-church is charming. Yet it would have been impossible to “stopped by” in the 50s, as the tiny neighborhood was then considered dangerous.
Maybe, in a few years — or decades — the government and fintechs would have worked hand in hand to reduce poverty and corruption throughout the country. Maybe, for my next trip to Mexico City, I would get to stay in Doctores.
